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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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FORM 10-Q
Quarterly Report Under Section 13 or 15(d)
of the Securities Exchange Act of 1934
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(Mark One)
[X] Quarterly report pursuant to Section 13 or 15(d) of the Securities Exchange
Act of 1934.
For the quarterly period ended SEPTEMBER 30, 1998, or
[ ] Transition report pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934.
For the transition period from________to________
Commission File Number: 0-26128
NORTHWEST INDIANA BANCORP
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(Exact name of registrant as specified in its charter)
Indiana 35-1927981
- --------------------------------------------- -----------------------
(State or other jurisdiction of incorporation (I.R.S. Employer
or organization) Identification Number)
9204 Columbia Avenue
Munster, Indiana 46321
- --------------------------------------- ----------
(Address of principal executive office) (ZIP code)
Registrant's telephone number, including area code: (219) 836-9690
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Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. Yes [X] No [ ]
There were 1,381,561 shares of the registrant's Common Stock, without par value,
outstanding at September 30, 1998.
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NORTHWEST INDIANA BANCORP
INDEX
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Page
Number
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PART I. Consolidated Financial Statements
Item 1. Consolidated Financial Statements of NorthWest Indiana Bancorp
Consolidated Balance Sheets, September 30, 1998 and December 31, 1997 1
Consolidated Statements of Income, Three Months and Nine Months Ended
September 30, 1998 and 1997 2
Consolidated Statements of Changes in Stockholders' Equity, Three Months and
Nine Months Ended September 30, 1998 and 1997 3
Consolidated Statements of Cash Flows, Three Months and Nine Months Ended
September 30, 1998 and 1997 4
Notes to Consolidated Financial Statements 5 - 6
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations 7 - 14
PART II. Other Information 15
SIGNATURES 16
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NorthWest Indiana Bancorp
Consolidated Balance Sheets
(unaudited)
September 30, December 31,
(Dollars in thousands) 1998 1997
------------ ------------
ASSETS
Cash and non-interest bearing balances in financial institutions ..... $ 7,623 $ 7,083
Interest bearing balances in financial institutions .................. 8,603 3,570
Federal funds sold ................................................... 2,310 --
------------ ------------
Total cash and cash equivalents .................................. 18,536 10,653
Available-for-sale securities ........................................ 6,856 1,646
Held-to-maturity securities (fair value: September 30, 1998 - $26,341;
December 31, 1997 - $27,852) .................................... 25,971 27,716
Loans held for sale .................................................. 167 --
Loans receivable ..................................................... 272,175 272,213
Less: allowance for loan losses ...................................... (3,087) (3,074)
------------ ------------
Net loans receivable ............................................. 269,088 269,139
Accrued interest receivable .......................................... 2,252 2,195
Premises and equipment ............................................... 6,694 6,820
Foreclosed real estate ............................................... 183 259
Other assets ......................................................... 1,586 1,181
------------ ------------
Total assets ..................................................... $ 331,333 $ 319,609
============ ============
LIABILITIES AND STOCKHOLDERS' EQUITY
Deposits:
Non-interest bearing ............................................... $ 20,197 $ 16,685
Interest bearing ................................................... 259,854 255,405
------------ ------------
Total ............................................................ 280,051 272,090
Borrowed funds ....................................................... 16,840 14,628
Accrued expenses and other liabilities ............................... 3,649 3,409
------------ ------------
Total liabilities ................................................ 300,540 290,127
Stockholders' Equity:
Preferred stock, no par or stated value;
10,000,000 shares authorized, none outstanding ..................... -- --
Common stock, no par or stated value; 20,000,000 shares authorized;
issued and outstanding: September 30, 1998 - 1,381,561 shares;
December 31, 1997 - 1,381,472 shares ............................... 345 345
Additional paid in capital ........................................... 2,950 2,948
Retained earnings - substantially restricted ......................... 27,425 26,189
Net unrealized gains on available-for-sale securities ................ 73 --
------------ ------------
Total stockholders' equity ....................................... 30,793 29,482
------------ ------------
Total liabilities and stockholders' equity ....................... $ 331,333 $ 319,609
============ ============
See accompanying notes to consolidated financial statements.
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NorthWest Indiana Bancorp
Consolidated Statements of Income
(unaudited)
Three Months Ended Nine Months Ended
(Dollars in thousands, except per share data) September 30, September 30,
1998 1997 1998 1997
---------- ---------- ---------- ----------
Interest income:
Loans receivable
Real estate loans ........................................ $ 4,933 $ 4,846 $ 14,941 $ 14,102
Commercial loans ......................................... 529 487 1,567 1,284
Consumer loans ........................................... 199 118 507 341
---------- ---------- ---------- ----------
Total loan interest .................................... 5,661 5,451 17,015 15,727
Securities ................................................. 522 499 1,478 1,685
Other interest earning assets .............................. 157 28 433 89
---------- ---------- ---------- ----------
Total interest income .................................. 6,340 5,978 18,926 17,501
---------- ---------- ---------- ----------
Interest expense:
Deposits ................................................... 2,868 2,855 8,647 8,364
Borrowed funds ............................................. 230 108 674 287
---------- ---------- ---------- ----------
Total interest expense ................................. 3,098 2,963 9,321 8,651
---------- ---------- ---------- ----------
Net interest income .......................................... 3,242 3,015 9,605 8,850
Provision for loan losses .................................... 25 55 65 136
---------- ---------- ---------- ----------
Net interest income after provision for loan losses .......... 3,217 2,960 9,540 8,714
---------- ---------- ---------- ----------
Noninterest income:
Gain on sale of loans, net ................................. 26 1 80 15
Gain on sale of foreclosed real estate ..................... 5 11 15 28
Fees and service charges ................................... 197 170 643 482
Trust operations ........................................... 72 62 235 217
Other ...................................................... -- 2 3 60
---------- ---------- ---------- ----------
Total noninterest income ............................... 300 246 976 802
---------- ---------- ---------- ----------
Noninterest expense:
Compensation and benefits .................................. 1,049 914 3,079 2,729
Occupancy and equipment .................................... 366 355 1,089 996
Federal insurance premium .................................. 41 40 124 122
Advertising ................................................ 22 30 112 114
Data processing ............................................ 107 90 315 260
Other ...................................................... 361 378 1,196 1,103
---------- ---------- ---------- ----------
Total noninterest expense .............................. 1,946 1,807 5,915 5,324
---------- ---------- ---------- ----------
Income before income tax expenses ............................ 1,571 1,399 4,601 4,192
Income tax expenses .......................................... 626 559 1,831 1,669
---------- ---------- ---------- ----------
Net income ................................................... $ 945 $ 840 $ 2,770 $ 2,523
========== ========== ========== ==========
Earnings per common share .................................... $ 0.69 $ 0.61 $ 2.01 $ 1.83
========== ========== ========== ==========
Earnings per common share, assuming dilution ................. $ 0.67 $ 0.60 $ 1.98 $ 1.81
========== ========== ========== ==========
Dividend declared per common share ........................... $ 0.37 $ 0.32 $ 1.11 $ 0.96
========== ========== ========== ==========
NorthWest Indiana Bancorp
Statement of Comprehensive Income
(unaudited)
Three Months Ended Nine Months Ended
(Dollars in thousands) September 30, September 30,
1998 1997 1998 1997
---------- ---------- ---------- ----------
Net Income ................................................... $ 945 $ 840 $ 2,770 $ 2,523
Other comprehensive income, net of tax:
Unrealized gains on securities ............................. 73 -- 73 --
---------- ---------- ---------- ----------
Comprehensive income ......................................... $ 1,018 $ 840 $ 2,843 $ 2,523
========== ========== ========== ==========
See accompanying notes to consolidated financial statements.
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NorthWest Indiana Bancorp
Consolidated Statements of Changes in Stockholders' Equity
(unaudited)
Three Months Ended Nine Months Ended
(Dollars in thousands, except per share data) September 30, September 30,
1998 1997 1998 1997
---------- ---------- ---------- ----------
Balance at beginning of period ...................... $ 30,287 $ 28,632 $ 29,482 $ 27,815
Stock option plan shares issued, 90 shares
at $11.50 - $21.25 per share and 1,861 shares
at $9.31 - $21.25 per share for the nine months
ended September 30, 1998 and 1997 ............. -- -- 2 18
Cash dividends declared, $1.11 per share
and $.96 per share for the nine months
ended September 30, 1998 and 1997 ............. (511) (442) (1,534) (1,326)
Net unrealized gains
on available-for-sale securities .............. 72 -- 73 --
Net income ...................................... 945 840 2,770 2,523
---------- ---------- ---------- ----------
Balance at end of period ............................ $ 30,793 $ 29,030 $ 30,793 $ 29,030
========== ========== ========== ==========
See accompanying notes to consolidated financial statements.
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NorthWest Indiana Bancorp
Consolidated Statements of Cash Flows
(unaudited)
Nine Months Ended
(Dollars in thousands) September 30,
1998 1997
---------- ----------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income ............................................ $ 2,770 $ 2,523
---------- ----------
Adjustments to reconcile net income to
net cash provided by operating activities:
Origination of loans for sale ..................... (2,004) (1,264)
Sale of loans originated for sale ................. 1,856 1,037
Depreciation and amortization, net of accretion ... 644 459
Net gains on sale of loans ........................ (79) (15)
Net gains on sale of fixed assets ................. -- (41)
Net gains on sale of foreclosed real estate ....... (15) (28)
Provision for loan losses ......................... 65 136
Net change in unearned interest on loans .......... (1) (4)
Change in deferred loan fees ...................... (24) (15)
Change in interest receivable ..................... (57) 8
Change in other assets ............................ (454) 535
Change in accrued expenses and other liabilities .. 240 137
---------- ----------
Total adjustments ............................ 171 945
---------- ----------
Net cash from operating activities ........... 2,941 3,468
---------- ----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of securities available-for-sale ............. (5,097) (49)
Proceeds from maturities of securities held-to-maturity 8,000 9,249
Purchase of securities held-to-maturity ............... (6,667) --
Principal collected on mortgage-backed securities ..... 375 331
Loan participation's purchased ........................ (500) (88)
Net change in loans receivable ........................ 180 (18,037)
Purchase of premises and equipment .................... (472) (284)
Sale of premises and equipment ........................ -- 100
Proceeds from sale of foreclosed real estate .......... 482 278
---------- ----------
Net cash from investing activities ................. (3,699) (8,500)
---------- ----------
CASH FLOWS FROM FINANCING ACTIVITIES:
Change in deposits .................................... 7,961 10,324
Proceeds from FHLB advances ........................... 4,000 3,279
Repayment of FHLB advances ............................ -- (7,000)
Change in other borrowed funds ........................ (1,788) 148
Proceeds from issuance of capital stock ............... 2 18
Dividends paid ........................................ (1,534) (1,326)
---------- ----------
Net cash from financing activities ................. 8,641 5,443
---------- ----------
Net change in cash and cash equivalents ............ 7,883 411
Cash and cash equivalents at beginning of period ...... 10,653 6,509
---------- ----------
Cash and cash equivalents at end of period ............ $ 18,536 $ 6,920
========== ==========
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:
Cash paid during the period for:
Interest ........................................... $ 9,360 $ 8,598
Income taxes ....................................... $ 2,053 $ 1,470
Transfers from loans to foreclosed real estate ........ $ 391 $ 346
See accompanying notes to consolidated financial statements.
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NORTHWEST INDIANA BANCORP
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1 - BASIS OF PRESENTATION
The consolidated financial statements include the accounts of NorthWest
Indiana Bancorp (the Company), its wholly-owned subsidiary, Peoples Bank SB (the
Bank), and the Bank's wholly-owned subsidiaries. The Company has no other
business activity other than being a holding company for the Bank. The
accompanying unaudited consolidated financial statements were prepared in
accordance with instructions for Form 10-Q and, therefore, do not include all
disclosures required by generally accepted accounting principles for complete
presentation of financial statements. In the opinion of management, the
consolidated financial statements contain all adjustments (consisting only of
normal recurring accruals) necessary to present fairly the balance sheets of the
Company as of September 30, 1998 and December 31, 1997, and the statements of
income and changes in stockholders' equity for the three and nine months ended
September 30, 1998 and 1997, and cash flows for the nine months ended September
30, 1998 and 1997. The income reported for the nine month period ended September
30, 1998 is not necessarily indicative of the results to be expected for the
full year.
NOTE 2 - CONCENTRATIONS OF CREDIT RISK
The Bank grants residential, commercial real estate, commercial
business and installment loans to customers in its primary market area of Lake
County, in northwest Indiana. Substantially all loans are secured by specific
items of collateral including residences, business assets and consumer assets.
NOTE 3 - RECLASSIFICATIONS
Certain amounts reported in the December 31, 1997 consolidated
financial statements have been reclassified to conform to the September 30, 1998
presentation.
NOTE 4 - COMMITMENTS AND CONTINGENCIES
The Bank is a party to financial instruments in the normal course of
business to meet financing needs of its customers and to reduce its own exposure
to fluctuating interest rates. These financial instruments include commitments
to make loans and standby letters of credit.
Exposure to credit loss in the event of nonperformance by the other
party to the financial instrument for commitments to make loans and standby
letters of credit is represented by the contractual amount of those instruments.
The Bank uses the same credit policy to make such commitments as it uses for
on-balance-sheet items.
At September 30, 1998 and December 31, 1997, commitments to make loans
totaled $42.8 million and $41.7 million, respectively and standby letters of
credit totaled $1,288 thousand and $501 thousand, respectively. At September 30,
1998, $36.7 million (86%) of the commitments were at variable rates.
Since commitments to make loans may expire without being used, the
amount does not necessarily represent future cash commitments. Collateral
obtained upon exercise of the commitment is determined using management's credit
evaluation of the borrower, and may include accounts receivable, inventory,
property, land and other items.
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NOTE 5 - EARNINGS PER SHARE
The weighted average number of shares used in the calculation of
earnings per share is presented below:
Three Months Ended Nine Months Ended
September 30, September 30,
1998 1997 1998 1997
---- ---- ---- ----
Earnings Per Common Share:
Weighted average common shares outstanding ................ 1,381,545 1,381,439 1,381,522 1,381,049
========= ========= ========= =========
Earnings Per Common Share, Assuming Dilution:
Weighted average diluted common shares outstanding ....... 1,396,280 1,396,115 1,396,153 1,393,082
========= ========= ========= =========
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MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
SUMMARY
NorthWest Indiana Bancorp, an Indiana corporation (the Bancorp), is the
holding company for Peoples Bank SB (the Bank), an Indiana savings bank. Peoples
Bank SB is a wholly owned subsidiary of the Bancorp. The Bancorp has no other
business activity other than being the holding company for Peoples Bank SB.
At September 30, 1998, the Bancorp had total assets of $331.3 million and
total deposits of $280.1 million. Stockholders' equity totaled $30.8 million or
9.3% of total assets, with book value per share at $22.29. The annualized return
on average assets (ROA) was 1.13%, while the annualized return on average
stockholders' equity (ROE) was 12.21%, for the nine months ended September 30,
1998.
FINANCIAL CONDITION
During the nine months ended September 30, 1998, total assets increased by
$11.7 million (3.7%), with interest-earning assets increasing by $10.9 million
(3.6%). At September 30, 1998, interest-earning assets totaled $316.1 million
and represented 95.4% of total assets.
Loans receivable and loans held for sale totaled $272.3 million which
represented 86.2% of interest-earning assets, 82.2% of total assets and 97.2% of
total deposits. The loan portfolio includes $19.4 million (7.1%) in construction
and development loans, $154.1 million (56.7%) in residential mortgage loans,
$65.4 million (24.0%) in commercial and multifamily real estate loans, $10.1
million (3.7%) in consumer loans, and $23.3 million (8.5%) in commercial
business and other loans. Adjustable rate loans comprised 65% of the total
investment in loans at September 30, 1998.
The Bank is primarily a portfolio lender. Mortgage banking activities are
limited to the sale of fixed rate mortgage loans with contractual maturities of
thirty years. These loans are sold, on a case-by-case basis, in the secondary
market as part of the Bank's efforts to manage interest rate risk. The Bank
retains the servicing on all loans sold in the secondary market. During the nine
months ending September 30, 1998, the Bank sold $1.8 million in fixed rate
mortgage loans. Net gains realized from the sales totaled $80 thousand. Mortgage
loan servicing income totaled $12 thousand. At September 30, 1998, the Bank had
two loans for $167 thousand classified as held for sale.
The primary objective of the investment portfolio is to provide for the
liquidity needs of the Bank and to contribute to profitability by providing a
stable flow of dependable earnings. Funds are generally invested in federal
funds, interest bearing balances in financial institutions, U.S. government
securities and federal agency obligations. Interest-bearing balances in
financial institutions include overnight deposits at the Federal Home Loan Bank
(FHLB). Investments are generally for terms ranging from one day to five years.
At September 30, 1998, the investment portfolio totaled $32.8 million and was
invested as follows: 69.5% in U.S. government agency debt securities, 21.7% in
U.S. government debt securities, 3.6% in U.S. government agency mortgage-backed
securities, and 5.2% in FHLB common stock. During the nine months ended
September 30, 1998, investment securities increased by $3.5 million (11.8%). At
September 30, 1998, the Bank had $8.6 million in interest-bearing balances at
the FHLB and $2.3 million in federal funds.
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Management believes that the credit risk profile of the earning asset
portfolio is relatively low. The table which follows sets forth information with
respect to the number (#) and balances (Amount) of non-performing assets and
related ratios for the periods indicated. The amounts are stated in thousands
(000's).
September 30, 1998 December 31, 1997
# Amount # Amount
--- -------- --- -------
Loans accounted for on a non-accrual basis:
Real estate loans:
Residential 16 $ 645 15 $ 715
Commercial 1 41 1 44
Commercial business loans - -- 1 56
Consumer loans 4 27 3 151
--- -------- --- -------
Total 21 $ 713 20 $ 966
=== ======== === =======
Accruing loans which are contractually past due 90 days or more:
Real estate loans:
Residential 7 $ 239 3 $ 220
Commercial 1 65 - --
Commercial business loans 0 -- - --
Consumer loans 0 -- 2 6
--- -------- --- -------
Total 8 $ 304 5 $ 226
=== ======== === =======
Total of non-accrual and accruing loans 90 days or more
past due loans 29 $ 1,017 25 $ 1,192
=== ======== === =======
Foreclosed real estate 3 183 5 $ 259
=== ======== === =======
Ratio of non-performing loans to total assets 0.31% 0.37%
Ratio of non-performing loans to total loans 0.37% 0.44%
Ratio of foreclosed real estate to total assets 0.06% 0.08%
Ratio of non-performing assets to total assets 0.36% 0.45%
At September 30, 1998, $1.1 million of the Bank's loans were classified as
substandard. The total represents 22 loans. No loans were classified as doubtful
or loss. Management does not anticipate that any of the non-performing loans or
classified loans will materially impact future operations, liquidity or capital
resources.
Because some loans may not be repaid in accordance with contractual
agreements an allowance for loan losses (ALL) has been maintained. While
management may periodically allocate portions of the allowance for specific
problem loans, the entire allowance is available to absorb all credit losses
that arise from the loan portfolio and is not segregated for, or allocated to,
any particular loan or group of loans. During the nine months ended September
30, 1998, additions to the ALL account totaled $65 thousand compared to $136
thousand for the nine months ended September 30, 1997. Charge-offs net of
recoveries totaled $52 thousand during the nine months ended September 30, 1998.
The amount provided during the current nine months was based on loan activity,
changes within the loan portfolio mix, current economic conditions and resulting
changes in management's assessment of portfolio risk. At
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September 30, 1998, the balance in the ALL account totaled $3.1 million, which
is considered adequate by management after evaluation of the loan portfolio,
past experience and current economic and market conditions.
The table below sets forth the allocation of the ALL and related ratios on
the dates indicated. The amounts are in thousands (000's). The percent columns
represent the percentage of loans in each category to total loans.
September 30, 1998 December 31, 1997
------------------ -----------------
Real estate loans:
Residential $ 302 56.7% $ 322 57.5%
Commercial and other dwelling 953 24.0 932 23.8
Construction and development 268 7.1 268 7.9
Consumer loans 162 3.7 153 2.1
Commercial business loans and other loans 630 8.5 630 8.7
Unallocated 772 769
------- ----- ------ -----
Total $ 3,087 100.0% $3,074 100.0%
======= ===== ====== =====
Ratio of ALL to loans outstanding 1.13% 1.13%
Ratio of ALL to non-performing loans 303.5% 257.8%
At September 30, 1998, no portion of the ALL was allocated to impaired loan
balances as the Bank had no loans considered to be impaired loans as of, or for
the nine months ended September 30, 1998. The allocation of the ALL reflects
consideration of the facts and circumstances that affect the repayment of
individual loans, as well as, loans which have been evaluated on a pooled basis.
Deposits are the major source of funds for lending and other investment
purposes. At September 30, 1998, deposits totaled $280.1 million. During the
nine months ending September 30, 1998, deposit growth totaled $8.0 million
(2.9%). Savings accounts increased $3.8 million (8.6%), checking accounts
increased $9.2 million (22.9%), money market deposit accounts (MMDA's) increased
$5.7 million (25.4%) while certificates of deposit decreased by $10.7 million
(6.5%). The decrease in certificates of deposit was due to maturing public
funds, which were replaced by FHLB advances with longer maturities and lower
rates. At September 30, 1998, the deposit base was comprised of 16.9% savings
accounts, 10.0% MMDA's, 17.7% checking accounts and 55.5% certificates of
deposit. At September 30, 1998, repurchase agreements totaled $4.1 million.
Other short-term borrowings totaled $757 thousand. The Bancorp had $12 million
in FHLB advances with a weighted-average maturity of 4.1 years.
LIQUIDITY AND CAPITAL RESOURCES
For the Bancorp, liquidity management refers to the ability to generate
sufficient cash to fund current loan demand, meet savings deposit withdrawals,
and pay dividends and operating expenses. The Bank's primary goal for liquidity
management is to ensure that at all times it can meet the cash demands of its
depositors and its loan customers. A secondary purpose of liquidity management
is profit management. Because profit and liquidity are often conflicting
objectives, management attempts to maximize the Bank's net interest margin by
making adequate, but not excessive, liquidity provisions. Finally, because the
Bank is subject to legal reserve requirements under Federal Reserve Regulation
D, liquidity is managed to ensure that the Bank maintains an adequate level of
legal reserves.
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Changes in the liquidity position result from operating, investing and
financing activities. Cash flows from operating activities are generally the
cash effects of transactions and other events that enter into the determination
of net income. The primary investing activities include loan originations, loan
repayments, investments in interest bearing balances in financial institutions,
and the purchase and maturity of investment securities. Financing activities
focus almost entirely on the generation of customer deposits. In addition, the
Bank utilizes borrowings, i.e., repurchase agreements and advances from the FHLB
as a source of funds.
During the nine months ended September 30, 1998, cash and cash equivalents
increased by $7.9 million compared to $411 thousand for the nine months ended
September 30, 1997. The primary sources of cash were deposit growth, proceeds
from FHLB advances, proceeds from maturities of securities and cash provided by
operating activities. The primary uses of cash were the purchase of securities,
reductions in other borrowed funds and the payment of common stock dividends.
During the current nine months cash provided by operating activities totaled
$2.9 million. Cash outflows from investing activities totaled $3.7 million
representing the purchase of securities, as loan portfolio balances remained
stable during the period. Cash flows from financing activities totaled $8.6
million, which includes deposit growth of $8.0 million and increases in FHLB
advances of $4.0 million.
At September 30, 1998, outstanding commitments to fund loans totaled $42.8
million. Approximately 86% of the commitments were at variable rates. The Bank
has sufficient cash flow and borrowing capacity to fund outstanding commitments
and to maintain proper levels of liquidity.
Management strongly believes that maintaining a high level of capital
enhances safety and soundness. During the nine months ended September 30, 1998,
stockholders' equity increased by $1.3 million (4.4%). The increase resulted
primarily from earnings of $2.8 million during the period. In addition, $2
thousand represents proceeds from the exercise of 90 stock options. The Bancorp
paid $1.5 million in cash dividends during the nine-month period. The change in
net unrealized gains on available-for-sale securities totaled $73 thousand for
the period.
The Bancorp is subject to risk-based capital guidelines adopted by the
Board of Governors of the Federal Reserve System (the FRB), and the Bank is
subject to risk-based capital guidelines adopted by the FDIC. As applied to the
Bancorp and the Bank, the FRB and FDIC capital requirements are substantially
identical. The Bancorp and the Bank are required to maintain a total risk-based
capital ratio of 8%, of which 4% must be Tier I capital. In addition, the FRB
and FDIC regulations provide for a minimum Tier I leverage ratio (Tier I capital
to adjusted total assets) of 3% for financial institutions that meet certain
specified criteria, including that they have the highest regulatory rating and
are not experiencing or anticipating significant growth. All other financial
institutions are required to maintain a Tier I leverage ratio of 3% plus an
additional cushion of at least one to two percent.
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The following table shows that, at September 30, 1998, the Bancorp's
capital exceeded all regulatory capital requirements. At September 30, 1998, the
Bancorp's and the Bank's regulatory capital ratios were substantially the same.
The dollar amounts are in millions.
Required for To be well
Actual adequate capital capitalized
------ ---------------- -----------
Amount Ratio Amount Ratio Amount Ratio
------------ ------------ ------------
Total capital to risk-weighted assets $33.4 15.4% $17.4 8.0% $21.8 10.0%
Tier I capital to risk-weighted assets $30.7 14.1% $ 8.7 4.0% $13.1 6.0%
Tier I capital to total assets $30.7 9.3% $ 9.9 3.0% $16.6 5.0%
RESULTS OF OPERATIONS - COMPARISON OF THE QUARTER ENDED SEPTEMBER 30, 1998 TO
THE QUARTER ENDED SEPTEMBER 30, 1997
Net income for the three months ended September 30, 1998 was $945 thousand
compared to $840 thousand for the quarter ended September 30, 1997, an increase
of $105 thousand (12.5%). The earnings represent a ROA of 1.15% for the current
quarter compared to 1.11% for the quarter ended September 30, 1997. The ROE was
12.33% for the current quarter compared to 11.61% for the quarter ended
September 30, 1997.
Net interest income for the three months ended September 30, 1998 was $3.2
million, up $227 thousand (7.5%) from $3.0 million for the three months ended
September 30, 1997. The increase in net interest income was due to the growth in
average interest-earning assets and a lower cost of funds. Interest-earning
assets averaged $313.9 million for the current quarter, up $23.4 million (8.1%)
from $290.5 million for the three months ended September 30, 1997. The
weighted-average yield on interest-earning assets was 8.08% for the three months
ended September 30, 1998 compared to 8.23% for the three months ended September
30, 1997. The weighted-average cost of funds for the quarter ended September 30,
1998, was 4.21% compared to 4.37% for the quarter ended September 30, 1997. The
impact of the 8.08% return on interest-earning assets and the 4.21% cost of
funds resulted in an interest rate spread of 3.87% for the current quarter
compared to 3.86% for the quarter ended September 30, 1997. During the current
quarter total interest income increased by $362 thousand (6.1%) while total
interest expense increased by $135 thousand (4.6%). The net interest margin was
3.95% for the three months ended September 30, 1998 compared to 3.97% for the
quarter ended September 30, 1997.
During the three months ended September 30, 1998, interest income from
loans increased by $210 thousand (3.9%) compared to the three months ended
September 30, 1997. The increase was due to an increase in average daily
balances for the loan portfolio. The weighted-average yield on loans outstanding
was 8.38% for the current quarter compared to 8.47% for the three months ended
September 30, 1997. Higher average loan balances have contributed to the
increase in interest income as loans averaged $270.3 million for the current
quarter, up $13.0 million (5.1%) from $257.3 for the three months ended
September 30, 1997. During the three months ended September 30, 1998, interest
income on investments and other deposits increased by $152 thousand (28.8%)
compared to the quarter ended September 30, 1997. The increase was due to higher
average daily balances. The
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weighted-average yield on securities and other deposits was 6.22% for the
current quarter compared to 6.35% for the three months ended September 30, 1997.
Securities and other deposits averaged $43.7 million for the current quarter, up
$10.5 million (31.6%) from $33.2 million for the three months ended September
30, 1997.
Interest expense for deposits increased by $13 thousand (0.5%) during the
current quarter compared to the three months ended September 30, 1997. The
increase was due to an increase in average daily balances. The weighted-average
rate paid on deposits for the three months ended September 30, 1998 was 4.13%
compared to 4.30% for the quarter ended September 30, 1997. Deposit balances
averaged $277.7 million for the current quarter, up $14.6 million (5.5%) from
$263.1 for the quarter ended September 30, 1997. Interest expense on borrowed
funds increased by $122 thousand (113.0%) during the current quarter due to the
increased cost of borrowed funds and higher average balances. The
weighted-average cost of borrowed funds was 5.55% for the current quarter
compared to 5.11% for the three months ended September 30, 1997. The increase
was due to lengthening the maturities of borrowed funds. Borrowed funds averaged
$16.5 million during the quarter ended September 30, 1998, up $8.2 million
(98.8%) from $8.3 million for the quarter ended September 30, 1997. Borrowed
funds have provided a cost-effective supplement to certificates of deposit, as
deposit pricing within the Bank's local market area has been very competitive.
Noninterest income for the quarter ended September 30, 1998 was $300
thousand, up $54 thousand (22.0%) from $246 thousand for the three months ended
September 30, 1997. During the current quarter, income from fees and service
charges increased $27 thousand (15.9%) while income from Trust operations
increased $10 thousand (16.1%). The increases in fees and service charges and
Trust income were due to an increase in the number of account relationships and
the implementation of additional fee and service charge pricing schedules and
procedures. During the current quarter, net gains on the sale of loans totaled
$26 thousand compared to $1 thousand during the three months ended September 30,
1997.
Noninterest expense for the quarter ended September 30, 1998 was $1.9
million, up $139 thousand (7.7%) from $1.8 million for the three months ended
September 30, 1997. The increase in compensation and benefits was due to
additional staffing, annual salary increases and the increased cost of employee
benefits. The increases in occupancy and equipment, and data processing reflect
investments in technology and new products and services. The Bancorp's
efficiency ratio was 55.0% for the quarters ended September 30, 1998 and 1997.
The ratio is determined by dividing total noninterest expense by the sum of net
interest income and total noninterest income for the period.
Income tax expenses for the three months ended September 30, 1998 totaled
$626 thousand compared to $559 thousand for the three months ended September 30,
1997, an increase of $67 thousand (12.0%). The increase was due to an increase
in pretax earnings during the current quarter. The combined effective federal
and state tax rates for the Bancorp were 40% for the three months ended
September 30, 1998 and 1997.
RESULTS OF OPERATIONS - COMPARISON OF THE NINE MONTHS ENDED SEPTEMBER 30, 1998
TO THE NINE MONTHS ENDED SEPTEMBER 30, 1997
Net income for the nine months ended September 30, 1998 was $2.8 million
compared to $2.5 million for the nine months ended September 30, 1997, an
increase of $247 thousand (9.8%). The earnings represent a ROA of 1.13% for the
current nine months compared to 1.12% for the nine months ended September 30,
1997. The ROE was 12.21% for the current nine months compared to 11.77% for the
nine months ended September 30, 1997.
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Net interest income for the nine months ended September 30, 1998 was $9.6
million, up $755 thousand (8.5%) from $8.9 million for the nine months ended
September 30, 1997. The increase in net interest income was due to the growth in
average interest-earning assets and a decrease in the cost of funds.
Interest-earning assets averaged $312.3 million for the current nine months, up
$25.5 million (8.9%) from $286.8 million for the nine months ended September 30,
1997. The weighted-average yield on interest-earning assets was 8.08% for the
nine months ended September 30, 1998 compared to 8.14% for the nine months ended
September 30, 1997. The weighted-average cost of funds for the nine months ended
September 30, 1998, was 4.24% compared to 4.30% for the nine months ended
September 30, 1997. The impact of the 8.08% return on interest-earning assets
and the 4.24% cost of funds resulted in an interest rate spread of 3.84% for
both the current nine months and the nine months ended September 30, 1997.
During the current nine months total interest income increased by $1.4 million
(8.1%) while total interest expense increased by $670 thousand (7.7%). The net
interest margin was 3.92% for the nine months ended September 30, 1998 compared
to 3.94% for the nine months ended September 30, 1997.
During the nine months ended September 30, 1998, interest income from loans
increased by $1.3 million (8.2%) compared to the nine months ended September 30,
1997. The increase was due to an increase in average daily balances for the loan
portfolio. The weighted-average yield on loans outstanding was 8.37% for the
current nine months compared to 8.39% for the nine months ended September 30,
1997. Higher average loan balances have contributed to the increase in interest
income as loans averaged $271.1 million for the current nine months, up $21.3
million (8.5%) from $249.8 for the nine months ended September 30, 1997. During
the nine months ended September 30, 1998, interest income on investments and
other deposits increased by $137 thousand (7.7%) compared to the nine months
ended September 30, 1997. The increase was due to higher average daily balances.
The weighted-average yield on securities and other deposits was 6.19% for the
current nine months compared to 6.40% for the nine months ended September 30,
1997. Securities and other deposits averaged $41.2 million for the current nine
months, up $4.2 million (11.4%) from $37.0 million for the nine months ended
September 30, 1997.
Interest expense for deposits increased by $283 thousand (3.4%) during the
current nine months compared to the nine months ended September 30, 1997. The
increase was due to an increase in average daily balances. The weighted-average
rate paid on deposits for the nine months ended September 30, 1998 was 4.17%
compared to 4.28% for the nine months ended September 30, 1997. Deposit balances
averaged $276.3 million for the current nine months, up $15.8 million (6.1%)
from $260.5 for the nine months ended September 30, 1997. Interest expense on
borrowed funds increased by $387 thousand (134.8%) during the current nine
months due to the increased cost of borrowed funds and higher average balances.
The weighted-average cost of borrowed funds was 5.40% for the current nine
months compared to 5.07% for the nine months ended September 30, 1997. The
increase was due to lengthening the maturities of borrowed funds. Borrowed funds
averaged $16.6 million during the nine months ended September 30, 1998, up $7.9
million (90.8%) from $8.7 million for the nine months ended September 30, 1997.
Borrowed funds have provided a cost-effective supplement to certificates of
deposit, as deposit pricing within the Bank's local market area has been very
competitive.
Noninterest income for the nine months ended September 30, 1998 was $976
thousand, up $174 thousand (21.7%) from $802 thousand for the nine months ended
September 30, 1997. During the current nine months, income from fees and service
charges increased $161 thousand (33.4%) while income from Trust operations
increased $18 thousand (8.3%). The increases in fees and service charges and
Trust income were due to an increase in the number of account relationships and
the implementation of additional fee and service charge pricing
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schedules and procedures. During the current nine months, net gains on the sale
of loans totaled $80 thousand compared to $15 thousand during the nine months
ended September 30, 1997.
Noninterest expense for the nine months ended September 30, 1998 was $5.9
million, up $591thousand (11.1%) from $5.3 million for the nine months ended
September 30, 1997. The increase in compensation and benefits was due to
additional staffing, annual salary increases and the increased cost of employee
benefits. The increases in occupancy and equipment, and data processing reflect
investments in technology and new products and services. Other expense changes
were due to standard increases in bank operations. The Bancorp's efficiency
ratio, for the current nine months was 55.9% compared to 55.2% for the nine
months ended September 30, 1997.
Income tax expenses for the nine months ended September 30, 1998 totaled
$1.8 million compared to $1.7 million for the nine months ended September 30,
1997, an increase of $162 thousand (9.7%). The increase was due to an increase
in pretax earnings during the current nine months. The combined effective
federal and state tax rates for the Bancorp were 40% for the nine months ended
September 30, 1998 and 1997.
YEAR 2000
The year 2000 problem stems from computer programs that identify the year
with two digits instead of four. The problem with this code is that in the year
2000, `00' may be interpreted as 1900 or not processed at all. The year 2000
problem is not limited to one type of software or hardware. Machines and
programs affected include mainframes, personal computers, networks, ATMs, and
other items such as elevators, infrastructures, and telephone systems.
The Bancorp has implemented an action plan to address the century date
change issue so that service and business operations will not be interrupted in
the year 2000. A project leader and a team of employees have analyzed daily
operations, business forms, software, hardware and equipment for year 2000
compliance. Due to the Bancorp's reliance upon external parties for business
operations, ongoing communication with third party vendors has been established
to monitor their year 2000 efforts. Management has assessed the impact of the
year 2000 problem and is currently renovating and testing systems and interfaces
to achieve year 2000 compliance. The Bancorp does not expect the cost of year
2000 compliance to have a material effect on its business, financial position or
results of operations.
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PART II - Other Information
---------------------------
Item 1. Legal Proceedings
-----------------
The registrant is not party to any legal proceedings. No
significant changes in legal proceedings of the Bank occurred
during the quarter.
Item 2. Changes in Securities
---------------------
Not applicable.
Item 3. Defaults Upon Senior Securities
-------------------------------
Not applicable.
Item 4. Submission of Matters to a Vote of Security Holders
---------------------------------------------------
Not applicable.
Item 5. Other Information
-----------------
Not applicable.
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits.
---------
(27) Financial Data Schedule
(b) Reports on Form 8-K. None.
-------------------
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SIGNATURES
----------
Pursuant to the requirement of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
NORTHWEST INDIANA BANCORP
Date: November 5, 1998 /s/ David A. Bochnowski
-----------------------
David A. Bochnowski
Chairman of the Board and Chief Executive Officer
Date: November 5, 1998 /s/ Edward J. Furticella
------------------------
Edward J. Furticella
Vice President, Chief Financial Officer and Treasurer
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